2013 (10) TMI 955 - SC - Indian Laws

Refund Claim - Auction sale - Kerala Abkari Shops (Disposal in Auction) Rules Doctrine of Frustration Statutory Contract - Validity of the judgment whereby the Division Bench held that the State was entitled to forfeit the entire deposited amount - Whether the appellant could invoke the doctrine of frustration or impossibility or whether she will be bound by the terms of the statutory contract Held that - On the failure of the auction purchaser to execute the agreement whether temporary or permanent, the deposit already made by auction purchaser towards earnest money and security money shall be forfeited - The appellant was declared as auction purchaser and she had deposited 30% of the bid amount in terms of Rule 5(10) of the Rules. A statutory contract in which party takes absolute responsibility cannot escape liability whatever may be the reason - In such a situation, events will not discharge the party from the consequence of non-performance of a contractual obligation - in a case in which the consequences of non-performance of contract is provided in the statutory contract itself, the parties shall be bound by that and cannot take shelter behind Section 56 of the Contract Act - Rule 5(15) in no uncertain terms provides that on the failure of the auction purchaser to make such deposit referred to in subrule 10 or execute such agreement temporary or permanent the deposit already made by him towards earnest money and security shall be forfeited to Government - the appellant had not carried out several obligations as provided in sub-rule (10) of Rule 5 and consequently, by reason of sub-rule (15), the State was entitled to forfeit the security money - In a contract under the Abkari Act and the Rules made thereunder, the licensee undertakes to abide by the terms and conditions of the Act and the Rules made thereunder which are statutory and in such a situation, the licensee cannot invoke the doctrine of fairness or reasonableness Decided against Assessee.

Summary

Issues Involved:

1. Validity of Rule 5(15) and 5(16) of the Kerala Abkari Shops (Disposal in Auction) Rules, 1974.
2. Applicability of the doctrine of frustration and impossibility under Section 56 of the Indian Contract Act.
3. Forfeiture of the security deposit by the State.
4. Invocation of the doctrine of fairness and reasonableness in statutory contracts.

Issue-wise Detailed Analysis:

1. Validity of Rule 5(15) and 5(16) of the Kerala Abkari Shops (Disposal in Auction) Rules, 1974:

The appellant contended that Rule 5(15) and 5(16) were arbitrary and violative of Article 14 of the Constitution. The learned Single Judge did not strike down these rules but quashed the notices and proceedings initiated against the appellant. The Division Bench, however, upheld the validity of these rules, emphasizing that "where there are statutory provisions, the contractual terms are defined by the statutory provisions which must govern the relationship between the parties."

2. Applicability of the Doctrine of Frustration and Impossibility under Section 56 of the Indian Contract Act:

The appellant argued that due to mass resistance and public upsurge, it was impossible to run the arrack shops, invoking the doctrine of frustration under Section 56 of the Contract Act. The appellant relied on precedents like Sushila Devi v. Hari Singh and Har Prasad Choubey v. Union of India, where the doctrine of frustration was applied due to supervening impossibilities. However, the Court distinguished these cases, noting that in the present case, the statutory contract explicitly provided for the consequences of non-performance, thus binding the appellant to the terms of the contract.

3. Forfeiture of the Security Deposit by the State:

The Division Bench held that the State was justified in forfeiting the security deposit of Rs. 7,68,600/- under Rule 5(15), which states that on failure to execute the agreement, the deposit shall be forfeited. The Court observed, "the appellant had not carried out several obligations as provided in sub-rule (10) of Rule 5 and consequently, by reason of sub-rule (15), the State was entitled to forfeit the security money."

4. Invocation of the Doctrine of Fairness and Reasonableness in Statutory Contracts:

The appellant argued that Rule 5(15) did not meet the requirements of reasonableness or fairness and should be invalidated. The Court, however, rejected this argument, citing the decision in Assistant Excise Commissioner v. Issac Peter, which stated that in contracts freely entered into with the State, "there is no room for invoking the doctrine of fairness and reasonableness against one party to the contract (State)." The Court held that the doctrine of fairness could not be used to alter the express terms of a statutory contract, particularly in commercial transactions.

Conclusion:

The Supreme Court dismissed the appeal, affirming the Division Bench's decision that the State was entitled to forfeit the security deposit. The Court held that in statutory contracts, the parties are bound by the terms of the contract, and doctrines of fairness or reasonableness cannot be invoked to modify these terms. The appeal was dismissed without any order as to costs.